US Equities Offer Up a Very Different View to Risk Appetite than USDJPY

We have opened up a new trading week to some very divisive views on market perspective. From my preferred, imperfect measures of sentiment – the major US indices – Monday was presented a meaningful gain in speculative reach. The S&P 500 advanced 1.2 percent – literally half of Friday’s charge higher but an extension that helps to combat serious uncertainty in the benchmark market. Two-day rallies are not exactly common place nowadays, cementing the perception that we are in a ‘bear market bounces’ and adding weight to the importance of the confluence of the 38.2% Fibonacci retracement of the post-pandemic rally (3,935) and the 38.2% Fib retracement of the January 4th to October 13th bear wave (3,810). I do not believe a meaningful trend has taken root to start this week given that there are even greater events scheduled later this week and anticipation is generally a powerful force on market activity: either through hesitation via anticipation or an outright fundamental offset.

Chart of S&P 500 with Volume, 20 and 50-Day SMAs, Consecutive Candle Runs (Daily)

(Click on image to enlarge)

Chart Created on Tradingview Platform

While there is an a bounce in the US indices to start the week, it is worth mentioning that the relative risk perspective of the Nasdaq 100 to Dow Jones Industrial Average ratio (growth to value) stabbed down to April 2020 lows to start this week. There is serious uncertainty to draw out of the market’s price action. One point of instability that is at the top of my watch list is the performance of USDJPY. Late into this past Friday’s session, the Japanese Ministry of Finance reportedly directed the BOJ to intervene on behalf of the exchange rate to the tune of $30-37 billion. Despite the size of action, the market did not exactly run with the initial retreat. There are a number of problems at work here. Japan’s Prime Minister over the weekend suggested the government was prepared to act against speculative forces generating extreme exchange rate volatility with potentially unlimited resolve. First and foremost, the USDJPY climb has seen a notable moderation in volatility these past weeks as it has climbed. More importantly, I believe the market is being driven more by yield and financial stability than anything else. That actively contrasts the Prime Minister’s vow to combat speculative flows.

Chart of USDJPY with 20 and 100-Day SMAs, 1-day Rate of Change (Daily)

(Click on image to enlarge)

More By This Author: